Applied Rationality focuses on public policy issues and tries to take a liberal perspective that is consistent (comments to the posts will often show otherwise) with neoclassical, rational-choice economics.

Saturday, February 28, 2009

More than 31 million people in the U.S. currently receive benefits from the Supplemental Nutrition Assistance Program (SNAP), which until last October was known as the Food Stamp Program. The number represents roughly one out of every ten Americans. The SNAP caseload has jumped by 15 percent in just the last year and looks to soar even higher as the economy deteriorates.

The SNAP is a means-tested program, which means that eligibility and benefits depend on people's incomes and some other resources. For households with little or no income, the maximum benefit is set to "meet" a U.S. Department of Agriculture (USDA) food cost plan, called the Thrifty Food Plan. For households with somewhat higher incomes, the maximum benefit is reduced either 24 cents for each dollar of earnings and 30 cents for each dollar of unearned income. The reduction reflects an expectation that these households will contribute some of their own resources to meet the food cost target.

The Thifty Food Plan is the least expensive of several low-cost food plans that the USDA prices out each month. SNAP benefits are adjusted each October based on the food plan for the preceding June. The figures for June 2008 put the weekly cost of meals for a household with two adults and two preadolescent school children at $135.80 per week, or $588 per month. $588 is also the maximum monthly SNAP benefit for a family of four.

Because food costs usually rise, SNAP benefits almost always lag behind these minimum standards. For instance, by December the USDA estimated that food costs for the same family of four had risen to $601. While the SNAP formula adjusts for the number of household members, it does not adjust for the ages of the members. Households with infants and very young children benefit from this, while households with teenagers or only adults lose out.

SNAP households will get a small break, starting this April. A provision in the recently enacted stimulus package will temporarily boost benefits by 13.6%, putting all of these households slightly above the low-end food cost plan.

Is the Thrifty Food Plan a realistic expectation for families? There are arguments to suggest it's not. For example, while the documentation of the plans state that they account for preparation time, the models that are used to calculate them do not incorporate any time use data. Also, in the most recent update of the plans in 2003, researchers kept the costs constant while adjusting meals and diets, rather than working things out the other way around.

To help SNAP families and other families plan their meals, the USDA has published a guide based on its food plan called Recipes and Tips for Healthy, Thrifty Meals. The guide provides an alternative way to test USDA assumptions, and that's what we're going to do.

For the next two weeks, the Ribars--mom, dad, and two teenage boys--are going to prepare and eat foods that follow the guide as closely as we can. We spotted some immediate adjustments that had to be made. For one thing, we needed to rearrange the timing of some meals to meet our work schedules and the boys' activity schedules (a three-hour pot roast works for us on a weekend but not on a weeknight). Along the same lines, we're sticking with our regular bag lunches on weekdays; we can't stay home to cook and eat lunches as the guide mandates. We're also picking and choosing among breakfast menus because of time constraints in the morning. In addition, we will have to adjust portion sizes to reflect the boys' ages (the guide assumes that the children are younger). For some people, these caveats might already answer the "reasonableness" question.

Below is the menu that we've set for the upcoming week. You can judge whether this comes close enough to the guidebook.

Our goals here are very limited. We are mainly looking at whether the recipes are at all realistic. Are they really inexpensive? Can they be prepared in a reasonable amount of time? Can we get the kids to eat them?

We also know that our experience isn't going to be anything close to what a SNAP household would face. First of all, we're keeping to a menu rather than a specific budget. Second, following any type of restricted plan for two weeks is much different than following a plan for months or years. Third, we start with a fully functioning kitchen, a pantry full of spices and other basic ingredients, and cabinets full of pots, pans, and appliances.

Tuesday, February 24, 2009

Expanding on a theme that has gotten considerable play during the recession began, CNN reports that neighborhoods are becoming more wary of crime as local economies deteriorate.

With the economic downturn, neighborhood watch groups are proving to be a first line of defense in battling property crimes.

The article indicates that these neighborhood fears may be well-grounded.

The Police Executive Research Forum, a Washington, D.C.-based independent research organization made up of local and state police officials, released a survey in January showing that 44 percent of police departments reported increases in crimes they believed could be attributed to the economic crisis.

Of the departments surveyed, 39 percent reported an increase in robberies, and 32 percent said they had seen a rise in burglaries.

Those surveyed also reported a 40 percent increase in thefts, including those of GPS devices from cars and other "opportunistic" crimes.

Empirical economic research also supports the notion that crime rates rise and fall with the economy, though the strength of the relationship may only be modest.

Steven Levitt (the author of Freakanomics) summarized evidence of economic links in a 2004 Journal of Economic Perspectivesarticle. The studies that he reviewed consistently found that crime rates increased with unemployment, but only slightly. He reported that each one percent rise in the unemployment rate was associated with a similar one percent rise in the property crime rate.

The CNN article includes information from a historical study that Price Fishback conducted of crime rates during the Great Depression that lines up with Levitt's findings. Fishback is quoted in the article as saying, "For a 1 percent increase in employment, you found about a 1 percent reduction in the crime rate."

Since the start of the recession last year, unemployment has increased about 3 percent, meaning that property crimes would have increased by roughly the same amount. A troubling result, but hardly a crime wave.

Some other research indicates that the association may be stronger. For example, an article published last year by Meng-Jen Lin reported that the responsiveness of property crimes to the unemployment rate might be as much as six times stronger than the figure used by Levitt. If so, we would expect the property crime rate to have jumped by up to 18 percent over the past year.

If there is a silver lining in the research, it is that the links between the economy and crime rates don't seem to extend to violent crimes.

Wednesday, February 18, 2009

I guess that I should be outraged by Wednesday's offensive editorial cartoon in the New York Post, depicting two policemen standing over the body of a chimp that they had just gunned down and saying, "They'll have to find someone else to write the next stimulus bill."

But I used up my outrage at President Bush being labeled as a "smirking chimp," President Clinton's voice being given to an animated gorilla, and this little gem to the right.

Tuesday, February 10, 2009

A mantra of economists is that competition benefits consumers. Apparently, those benefits are now trickling down to those of us who crave caffeine. In an article about Starbucks new "Pairings" value meal, CNN reports this morning that

Research done by William Blair & Co. suggests Starbucks' price premium "has nearly evaporated over the past 18 months, with pricing now largely on par with Dunkin' Donuts." The survey found that when adjusted for size differences, some varieties of Starbucks coffee were cheaper than Dunkin' Donuts. According to the research, McDonald's is still cheaper, but the price gap has narrowed since 2007.

The Pairings will start next month and will include a coffee and food item for just under $4. Give the soft economy some credit for the new value offering along with stiff competition from McDonald's, Dunkin' Donuts, and a host of Starbucks imitators.

Despite the lower prices, brewing your own coffee and fixing your own breakfast remains a cheaper and healthier alternative. Then again who wants to miss out on Handcrafted Lattes and Cinnamon Swirl Coffee Cake. Oops gotta go.

Friday, February 6, 2009

Paul Krugman's column today in the New York Times calls on the President to turn up the heat on Republicans and press forward unapolagetically for the Democrats' stimulus plan.

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

An analysis story in the Times, however, cautions that trillions of dollars of infrastructure investments in Japan did little to improve the economy.

Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

One side says that Japan should have spent more, spent it faster, and spent it more wisely.

One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root.

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

Krugman's column does mention Japan as a cautionary tale, but doesn't mention the failure of the stimulus plan there to achieve results.

And deflationary traps can go on for a long time. Japan experienced a "lost decade" of deflation and stagnation in the 1990s — and the only thing that let Japan escape from its trap was a global boom that boosted the nation’s exports. Who will rescue America from a similar trap now that the whole world is slumping at the same time?

He is advocating for a bigger stimulus.

The other side, however, claims that fundamental reforms and shifts are key to a recovery.

In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.

Wednesday, February 4, 2009

Yesterday's decision by Nancy Killefer to withdraw from consideration as the President Obama's deputy director of the Office of Management and Budget and "Chief Performance Officer" marks a return to silly season in Washington.

Ms. Killefer was eminently qualified for the two positions for which she was nominated. She had previously served in the Clinton administration as the assistant secretary of treasury for management (it's only a hazy memory now, but you may recall that that Treasury Department presided over a budget surplus). More recently, she had served as an executive with the large consulting firm of McKinsey & Co., specializing in management issues for the firm's government clients.

What was Killefer's mistake? She and her husband allegedly failed to pay $298 in unemployment compensation taxes to the District of Columbia in 2003 and 2004 for one or more of their household employees. DC filed a lien against her home in 2005, adding a small amount of interest and $600 as a penalty. She resolved the matter that year. Thus, unlike Timothy Geithner and Thomas Daschle, Ms. Killefer fixed the tax issue when it occurred and not while being considered for a government appointment.

As anyone who has dealt with the District's dysfunctional city bureaucracy can attest, she and her husband deserve considerable benefit of doubt in the matter. However, even if they did make a mistake, a $298 local tax bill that was resolved years earlier should not disqualify someone from taking a pay cut to serve the government.

Yes, there is a principle involved--people should pay their taxes. Moreover, public officials, especially those whose responsibilities include financial management, should be held to high standards. But there also needs to be a sense of perspective. $298, c'mon.

It is no small irony that Ms. Killefer's withdrawal came at nearly the same time that military auditors were testifying about billions of dollars that had been misspent in Iraq and billions more that may be misspent in Afghanistan. It also comes at a time when oversight is needed for the remaining financial bailout, the recovery of billions in Medicare prescription overpayments, the management of a massive (and currentlybloated) stimulus package, and the reform of over-extended social insurance programs.